It’s taken a lot of name-calling to get here but we finally know which two candidates we have to choose from to be our next prime minister. Did I say “we”? I mean, of course, that tiny proportion of the great British public who happen to pay £25 a year to be members of the Conservative Party and have thus earned the right to vote for either Rishi Sunak or Liz Truss. Such is the way our democratic system functions and has done for a long time. We might moan about that, but at least we must acknowledge that there is a very clear economic divide between the two candidates: Liz Truss wishes to cut taxes, while Rishi Sunak condemns this approach.
He summed up his case against her in one swipe at the end of their second (and last) televised leadership debate. He said her plans to cut more than £30 billion worth of taxes were irresponsible. They were the equivalent of “practising socialism.” So what will she do?
On her first day as prime minister, he says she would reverse Sunak's 2.5% increase in national insurance, axe plans to raise corporation tax and scrap green levies on energy bills. She justifies it thus: "A recession has been forecast. What we know is that high taxes choke off investment. They choke off people's incentives to set up businesses or go for growth... We have the highest tax burden for 70 years. In that context, I don't think it's right to raise taxes.
"My political philosophy, my principle, is that people should be able to have as much of their own money as possible because they are best placed to spend it whether it's on supporting their family, investing in a new business [or] realising opportunities. We should only take money in taxation when we absolutely have to pay for necessary public services."
Truss rejects Sunak’s charge that her approach is based on socialism and that cutting taxes means cutting services too. There will be no return, she says, to the “austerity of David Cameron's government”. Cutting taxes would pay for itself because it would result in greater economic growth. And she has promised to “bulldoze” through “endless government bureaucracy” resulting in greater efficiency savings: "I'm a low-tax Conservative... You cannot tax your way to growth." By contrast, she says, she says, Sunak’s "business-as-usual" approach will lead to a recession because “high taxes choke off investment... they choke off people's incentives to set up businesses or go for growth."
She sums up her political philosophy thus: “People should be able to have as much of their own money as possible because they are best placed to spend it whether it's on supporting their family, investing in a new business [or] realising opportunities. We should only take money in taxation when we absolutely have to pay for necessary public services." She accuses Sunak of "peddling" a failed economic policy. His tax policy would lead to a recession and make it "very hard" for the Conservatives to win the next general election.
Sunak has ruled out cutting personal taxes until the autumn of next year at the earliest. He has warned that Truss’s policies would wreck the economy and make families poorer in the long run because the tax cuts are “unfunded” and would push up mortgage rates. He has also accused her of going on a huge borrowing spree with serious consequences for inflation, which is already hitting historically high levels and would become “embedded”. He told LBC: “If we don’t get a grip on inflation now, it will make families poorer in the long run because it would “erode all the savings that they’ve worked really hard to build up”.
The latest figures show that inflation reached a 12-month rate of 9.4% by the end of June. That’s more than 7 percentage points ahead of the Bank of England’s target and is the highest for 40 years. And it’s still climbing. Most experts believe it will reach 11% before it starts to slow down. Sunak supporters point out that that’s hardly his fault: it’s much the same picture in other rich countries and is down to international rather than domestic factors. One obvious cause is the Russian invasion of Ukraine and its devastating effect on energy prices. More tax cuts, they say, might very well leave many people better off in the immediate future, but they would add to demand and give a further boost to inflation.
The governor of the Bank of England, Andrew Bailey, has warned of severe consequences: “If we see signs of greater persistence of inflation we will have to act forcefully”.
The message from the City of London seems to be pretty firmly against the Truss approach. Financial analysts and big fund managers have warned that it could lead to a real increase in government borrowing and knock the pound. There is, they say, precious little room to manoeuvre. Figures from the Office for National Statistics show that interest payments on government debt climbed last month to £19.4 billion. That’s the highest it’s ever been: more than double the previous record.
One fund manager says: “Whoever comes in is going to have to recognise that we really don’t have money to throw around. If Truss starts expanding borrowing and unfunded tax cuts and so on, logically the pound should weaken.” Last week the pound hit its lowest level against the dollar for more than two years. And this week it touched a two-year low against the euro.
Whatever one’s view of the solutions offered by the rival candidates there can be no doubt that the problem facing the nation as the Tories choose another prime minister is real. Clare Foges, who was the chief speechwriter at Number Ten under David Cameron and now writes for The Times says she is perplexed by those who want to spend less money by shrinking the size of the state.
She asks these questions: “Are the candidates aware that ambulance crews are taking an average of 51 minutes to reach heart attack and stroke victims? Have they tried to get an appointment with a GP? Have they received constituents' letters about grindingly long delays with getting passports, driving licences, probate applications, tax rebates? What of the huge numbers on NHS waiting lists, the cancer surgery backlog, the young people waiting three years for mental health care, the autistic children waiting five (yes, five) years for a first appointment?
“What of the fact that police are solving their lowest proportion of crimes ever? Let's not even start on housing ... Granted, this list is hardly an advertisement for the status quo, and candidates would no doubt claim their vision is of a state not only smaller but nimbler, more effective and less wasteful. But really, how can anyone serious look at the pile-up of problems here and conclude that the imperative is not to make the state work better but to shrink it?
“Small state ambitions don't just miss where we are now but where we are heading. Candidates talk with fervour about bringing big government to heel, while ignoring the greying elephant rampaging around the room. Last month data from the 2021 census revealed that the number of people aged 65 and over has surpassed the number of children under 15 for the first time. We are now home to over half a million nonagenarians.
“Joyful developments but with profound implications: the Office for National Statistics predicts that in 20 years there will be 367 pensioners per 1,000 people of working age, an increase of 20 per cent from 2016. Already councils are facing a £3 billion funding shortfall over the coming years. Last week, Devon county council announced it faces a £40 million black hole. To fill it, the finance director declares that ‘everything is on the table’. Images float to mind of elderly people ossified in armchairs after days alone.”
A bleak picture indeed, so what do you think is the best approach if we are to dig ourselves out of the economic troubles we find ourselves in? Do you accept the Truss argument that lower taxes and greater efficiency on the part of the state will lead to more growth in the economy and deregulation will encourage a new generation of wealth-creating entrepreneurs? Or do you lean to the Sunak view that now is no time to risk the tiger of inflation roaring even louder and jeopardising our economic future?
Let us know.